I.I.I. Glossary

FACULTATIVE REINSURANCE- A reinsurance policy that provides an insurer with coverage for specific individual risks that are unusual or so large that they aren’t covered in the insurance company’s reinsurance treaties. This can include policies for jumbo jets or oil rigs. Reinsurers have no obligation to take on facultative reinsurance, but can assess each risk individually. By contrast, under treaty reinsurance, the reinsurer agrees to assume a certain percentage of entire classes of business, such as various kinds of auto, up to preset limits.

UNEARNED PREMIUM- The portion of a premium already received by the insurer under which protection has not yet been provided. The entire premium is not earned until the policy period expires, even though premiums are typically paid in advance.